[Federal Register: April 4, 2007 (Volume 72, Number 64)]
[Notices]
[Page 16388-16389]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ap07-94]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55547; File No. SR-Amex-2006-110]
Self-Regulatory Organizations; American Stock Exchange LLC; Order
Granting Approval of Proposed Rule Change Relating to Options Based on
Commodity Pool ETFs
March 28, 2007.
I. Introduction
On November 24, 2006, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposal to amend certain rules to permit the listing and trading of
options on securities issued by trust issued receipts (``Commodity
TIRs''), partnership units, and other entities (referred herein to as
``Commodity Pool ETFs'') that hold or invest in commodity futures
products. The proposed rule change was published for comment in the
Federal Register on February 6, 2007.\3\ The Commission received no
comments regarding the proposal. This order approves the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 55187 (January 29,
2007), 72 FR 5467.
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II. Description of the Proposal
The purpose of the proposed rule change is to enable the listing
and trading on the Exchange of options on interests in Commodity Pool
ETFs that trade directly or indirectly commodity futures products. As a
result, Commodity Pool ETFs are subject to the Commodity Exchange Act
(``CEA'') due to their status as a commodity pool,\4\ and therefore,
regulated by the Commodity Futures Trading Commission (``CFTC'').\5\
Commodity Pool ETFs may hold or trade in one or more types of
investments that may include any combination of securities, commodity
futures contracts, options on commodity futures contracts, swaps, and
forward contracts.
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\4\ A ``commodity pool'' is defined in CFTC Regulation
4.10(d)(1) as any investment trust, syndicate, or similar form of
enterprise operated for the purpose of trading commodity interests.
CFTC regulations further provide that a ``commodity interest'' means
a commodity futures contract and any contract, agreement or
transaction subject to Commission regulation under section 4c or 19
of the Act. See CFTC Regulation 4.10(a).
\5\ The manager or operator of a ``commodity pool'' is required
to register, unless applicable exclusions apply, as a commodity pool
operator (``CPO'') and commodity trading advisor (``CTA'') with the
CFTC and become a member of the National Futures Association
(``NFA'').
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Currently, Commentary .06 to Amex Rule 915 provides securities
deemed appropriate for options trading shall include shares or other
securities (``Exchange-Traded Fund Shares'') that are principally
traded on a national securities exchange or through the facilities of a
national securities association and reported as an NMS security, and
that: (i) Represent an interest in a registered investment company
organized as an open-end management investment company, a unit
investment trust or a similar entity which holds securities
constituting or otherwise based on or representing an investment in an
index or portfolio of securities; or (ii) represent interest in a trust
or other similar entity that holds a specified non-U.S. currency
deposited with the trust or similar entity when aggregated in some
specified minimum number may be surrendered to the trust by the
beneficial owner to receive the specified non-U.S. currency and pays
the beneficial owner interest and other distributions on the deposited
non-U.S. currency, if any, declared and paid by the trust.
The proposal would amend Commentary .06 to Rule 915 to expand the
type of options to include the listing and trading of options based on
shares of Commodity Pool ETFs (the ``Shares'') that may hold or invest
directly or indirectly in commodity futures products, including but not
limited to, commodity futures contracts, options on commodity futures
contracts, swaps, and forward contracts. For Commodity Pool ETFs, a
comprehensive surveillance sharing agreement will be required between
the Exchange and the marketplace or marketplaces with last sale
reporting that represent(s) the highest volume in such commodity
futures contracts and/or options on commodity futures contracts on the
specified commodities or non-U.S. currency, which are utilized by the
national securities exchange where the underlying Commodity Pool ETFs
are listed and traded.\6\ The Exchange has represented that it has an
adequate surveillance program in place for options based on Commodity
Pool ETFs.
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\6\ See proposed Commentary .06(a)(v) to Amex Rule 915.
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Under the applicable continued listing criteria in Commentary .07
to Amex Rule 916, the options on the Shares shall not be deemed to meet
the Exchange's requirements for continued approval, and the Exchange
shall not open for trading any additional series of option contracts of
the class covering the Shares whenever the Shares are subject to
delisting as follows: (1) Following the initial twelve-month period
beginning upon the commencement of trading of the Shares, there are
fewer than 50 record and/or beneficial holders of the Shares for 30 or
more consecutive trading days; (2) the value of the index, non-U.S.
currency, portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts and/or options on physical commodities, or portfolio of
securities on which the Shares are based is no longer calculated or
available; or (3) such other event occurs or condition exists that in
the opinion of the Exchange makes further dealing on the Exchange
inadvisable. Additionally, the options on the Shares shall not be
deemed to meet the requirements for continued approval, and the
Exchange shall not open for trading any additional series of option
contracts of the class covering such Shares, if the Shares are halted
from trading on their primary market, or if the Shares are delisted, or
the value of the index or portfolio on which the Shares are based is no
longer calculated or available.
The proposal would amend Amex Rule 3 to require members to
establish, maintain, and enforce written policies and procedures to
prevent the misuse of material nonpublic information it might have or
receive in a related security, option or derivative or in the
applicable related commodity, commodity futures or options on commodity
futures, or any other related commodity derivatives. The proposal would
also amend Amex Rule 957 to ensure that the specialist and Registered
Traders handling the Shares provide the Exchange with all necessary
information relating to their trading in the applicable, physical
commodities, physical commodity options, commodity futures contracts,
options on commodity futures contracts, any other derivatives based on
such commodity. Lastly, the revision to Rule 957 would prohibit a
specialist or Registered Trader engaging in physical commodities,
physical commodity options, commodity futures contracts, options on
commodity futures contracts, any other derivatives based on such
commodity from trading in an account
[[Page 16389]]
which has not been reported to the Exchange.
III. Discussion
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange \7\ and, in particular, the requirements of Section 6 of the
Act.\8\ Specifically, the Commission finds that the proposed rule
change is consistent with Section 6(b)(5) of the Act,\9\ which
requires, among other things, that the rules of a national securities
exchange be designed to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest.
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\7\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(5).
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Surveillance
The Commission notes that the Exchange has represented that it has
an adequate surveillance program in place for options based on
Commodity Pool ETFs. The Exchange may obtain trading information via
the Intermarket Surveillance Group (``ISG'') from other exchanges who
are members or affiliates of the ISG and have entered into numerous
comprehensive surveillance sharing agreements with various commodity
futures exchanges worldwide. Prior to listing and trading options on
Commodity Pool ETFs, the Exchange represented that it will either have
the ability to obtain specific trading information via ISG or through a
comprehensive surveillance sharing agreement with the exchange or
exchanges where the particular commodity futures and/or options on
commodity futures are traded. In addition, the Exchange represented
that the addition of Commodity Pool ETF options will not have any
effect on the rules pertaining to position and exercise limits \10\ or
margin.\11 \
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\10\ See Amex Rules 904 and 905.
\11\ See Amex Rule 462.
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Listing and Trading of Options on Commodity Pool ETFs
The Commission notes that, pursuant to the proposed rule change, a
Commodity Pool ETF will be subject to the provisions of Amex Rules 915
and 916, as applicable. These provisions include requirements regarding
initial and continued listing standards, the creation/redemption
process for ETFs, and trading halts. All Commodity Pool ETFs must be
traded through a national securities exchange or through the facilities
of a national securities association, and must be ``NMS stock'' as
defined under Rule 600 of Regulation NMS.\12\
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\12\ 17 CFR 242.600(b)(47).
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The Commission believes that this proposal is necessary to enable
the Exchange to list and trade options on an expanding range of
Commodity Pool ETFs currently approved for trading and that it is
reasonable to expect other types of Commodity Pool ETFs to be
introduced for trading in the future. This proposal would help ensure
that the Exchange will be able to list options on Commodity Pool ETFs
that have been recently launched as well as any other similar Commodity
Pool ETFs that may be listed and traded in the future \13\ thereby
offering investors greater option choices.
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\13\ 17 CFR 240.19b-4(e).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-Amex-2006-110), is hereby
approved.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-6200 Filed 4-3-07; 8:45 am]
BILLING CODE 8010-01-P